Go-To Rate
Because our credit rating is oh so good, we receive tons of credit card offers in the mail every day. Most of them go right into the blue bin. But today, an offer from a company called Furtive & Dupe, Inc. catches our eye. “Zero percent interest for 24 months!” the envelope screams. “No minimum transfer balance!”
“Well that’s a good deal,” we think, opening the envelope to get more details.
Hidden in the fine print, we find the catch: after that 24-month introductory interest rate of 0% expires, the rate on the card goes up to 33.79%. In other words, the go-to rate, the rate we’re stuck with once the introductory rate expires, is dang near 34%, which is not a good deal at all.
Most go-to rates tend to fall somewhere between 12% and 29%. That’s a pretty big swing, which is why it’s important to ARFP: Always Read the Fine Print. If we pay off our cards every month like good little consumers, then we might care less about what the card’s interest rate is, because we’re not paying interest on a balance from month to month. But if we do carry a balance on one or more credit cards, we should definitely be paying attention to both introductory and go-to rates. Because if our credit is decent, there’s a chance we could save ourselves some money by switching to another card.
Related or Semi-related Video
Finance: What is Imputed Interest Rate?1 Views
Finance allah shmoop What is imputed interest rate Imputed guest
at or presumed based on x y and z that's
the foundation of an imputed interest rate and its chief
cheerleader Yep It's the i r s the tax people
those guys you just love to hear from Why Well
because taxes need to be collected Right We have pork
to buy for politicians Come on people Get with it
So we have a zero coupon bond here We bought
for five hundred bucks which comes do or pays off
in ten years for a thousand dollars on lee Remember
Zero coupon bonds don't pay any interest along the way
They just pay a one time end of period amount
which includes interest and principal The irs taxes Bondholders imputed
interest Yes like gains based on whatever interest rate is
imputed by the terms of the deal So in this
case remember that rule of seventy two thing so many
years to doubled about it into seventy two and all
that Yeah So in this case the money takes ten
years to double that's ten into seventy two paying seven
point two percent interest per year Compound it So the
irs would take as an imputed interest Five hundred box
times seven point two which is thirty six dollars of
taxable imputed interest games And they would take that each
year and you'd pay that each year on your taxes
So if you owned this bond and we're living in
a forty percent marginal tax bracket blue state which you
livin bitterly even though you got no cash interest from
this bond will you'd suffer a cash tax hit of
forty percent of thirty six or a bit under fifteen
dollars each year as you went along So that's the
bad news you pay the cash up front The good
news is that when the bond finally came do that
decade later for that grand well you have already paid
the taxes along the way And when taxes are already 00:02:01.504 --> [endTime] paid well we impute you'll be a happier camper
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